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Drug Channels delivers timely analysis and provocative opinions on pharmaceutical economics and the drug distribution system. It is written by Adam J. Fein, Ph.D., one of the country's foremost experts on pharmaceutical economics and channel strategy. Drug Channels reaches an engaged, loyal and growing audience of more than 26,000 subscribers. Learn more...

I won’t rehash the constitutional issues. As long-time readers know, I think the ACA is messy, inelegant legislation with enormous unintended consequences. Nonetheless, it’s the law of the land (for now), so let’s review what it means for drug channel participants.

Pharmacy Benefit Managers (PBMs) will gain from the expanded coverage and the launch of biosmiliars. The “transparency” requirements should not be material.

Retail pharmacies will benefit from increased prescription volume and various legislative “fixes,” but face margin risk as the uninsured get the advantage of third-party bargaining power.

Drug wholesalers will benefit from increased volume, although pharmacies’ generic margin pressure will flow up the channel.

For pharmaceutical manufacturers, the gains from increased prescription volume and expanded coverage are offset by new fees and higher rebates. The impact of biosimilars depends on whether your company is facing biosimilar competition, or planning to become a biosimilar competitor.

Read on for details. And whether we like it or not, the Centers for Medicare and Medicaid Services (CMS) has almost unlimited power to reshape our healthcare system via regulation. Be afraid. Be very afraid.

Wednesday, June 27, 2012

On Monday, a Cleveland Research report publicized something that many of us already know: "Walgreen's (NYSE:WAG) may be looking to bypass Cardinal Health (NYSE:CAH) in order to source branded drugs directly and that the Boots acquisition may help support the initiative." (Sorry, the complete report is not available.)

Obviously, this would be a material change for Cardinal as well as the brand-name manufacturers selling through wholesalers. By my estimates, Walgreens accounts for about 25% of Cardinal Health’s drug distribution revenues, but only about 6% of Cardinal’s drug distribution operating profit.

Below, I take a brief detour into the arcane world of pharmaceutical pricing to explain the hidden economics that sustain these warehouse sales for wholesalers. At a minimum, Walgreens must convince manufacturers to alter long-standing discount structures, or the math just doesn't work. And as Cleveland notes, "manufacturer support is mixed."

Tuesday, June 26, 2012

Last Tuesday’s Walgreens-Alliance Boots deal creates a $111 billion (pro forma) global pharmacy/wholesale company. About one-quarter of the new company's revenues will come from non-US drug wholesaling, primarily in Europe.

Coincidentally, McKesson held its annual Investor Day meeting on the very same day. Chairman and CEO John Hammergren downplayed any European expansion, implying that McKesson’s capabilities equal or exceed what’s across the pond. He also offered an intriguing rhetorical question about scale. Full quote below.

BTW, many people have asked me to comment further on last week’s Walgreens-Alliance Boots deal. Rather than posting to Drug Channels, I have provided a special report exclusively to Pembroke Consulting's clients. Sorry to disappoint.

Below, IIR highlights challenges in managing Medicaid drug rebates with 50 states plus the District of Columbia. The upcoming MDRP Summit will include opportunities for manufacturers to meet with representatives from multiple states, including Texas, North Carolina, Illinois, Oregon, Connecticut, Florida, New Jersey, and Kansas.

Here are four key insights about the 2021 drug market, assuming that the Patient Protection and Affordable Care Act (ACA) remains in place:

Public funds, primarily Medicare and Medicaid, will pay for 44% of all drug spending.

Insurance purchased via exchanges will be 5% of drug spending.

The employer-sponsored insurance market will keep shrinking.

Out-of-pocket spending by consumers will account for an even-smaller part of drug spending.

Read on for a look at the past, present, and future of payers. Pharmaceutical manufacturers need to consider how contracting will change as traditional private insurance declines. Meanwhile, PBMs will be gearing up as more people get coverage, although the business will shift to health plans at the expense of self-insured employers.

Thursday, June 14, 2012

Summer is just around the corner. Time to clean the barbecue, buy a new bathing suit, and pack the kids for camp. In the meantime, enjoy my latest selection of noteworthy news stories from the Drug Channels universe.

Tuesday, June 12, 2012

As part of my ongoing efforts to illuminate the drug channel, here’s a look at the 2011 specialty pharmacy market.

According to Pembroke Consulting's research, the specialty market boomed last year. In 2011:

$46.9 billion of specialty drugs were dispensed by retail, mail, and specialty pharmacies.

Specialty drugs represented about 17% of the pharmacy industry’s total revenues.

Pharmacy revenues from specialty drugs grew by $7.7 billion (+19.7%).

Three companies—Express Scripts, CVS Caremark, and Walgreens—generate about two-thirds of revenues from pharmacy-dispensed specialty drugs. The next two largest players had a combined share of less than 4%.

Read on for market share estimates for the top 7 (now top 5) players, along with observations on the market's evolution and implications for manufacturers.

Thursday, June 07, 2012

This week, the non-partisan Congressional Budget Office (CBO) released their latest look at the U.S. long-term budget outlook. (Links below.)

The news isn’t good. The U.S. is heading for a disaster of biblical proportions. Fire and brimstone coming down from the skies! Rivers and seas boiling! Earthquakes, volcanoes...human sacrifice, dogs and cats living together...mass hysteria!

Pharmaceuticals are less exposed to government spending than overall health care spending. Nonetheless, the numbers should give us all pause. CBO’s baseline scenario shows Federal spending on Medicare and Medicaid almost doubling, from 2011's 5.6% to 10.4% in 2037. National health care spending will rise to about 25% of GDP.

Read on for the grim details. Let’s hope we can sort it out before Gozer the Traveler returns.

Tuesday, June 05, 2012

On June 1, CMS officially launched its wagon train to the stars—the National Average Drug Acquisition Cost (NADAC) survey. CMS is now surveying 2,500 pharmacies per month, gathering invoices to compute a public average acquisition cost (AAC) for pharmacy reimbursement.

The plan is unlikely to work. Here’s why:

The pharmacy industry doesn’t think CMS has the right to collect these data.

Participation is voluntary, so many pharmacies will simply ignore the survey.

Friday, June 01, 2012

I am conducting a very brief reader survey to learn what you like and dislike about the site. There are just 4 questions, so it should only take you about 5 minutes to complete. You can answer anonymously. Here's the link:

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